Gold prices to remain under pressure in near-term; check key levels

Gold price today: Bears eye $2537 (Rs 74,000), the cycle-low made on November 14, for Gold. Resistance is at $2630 (Rs 76,700)

Gold: Bears eye $2536 on the Fed's hawkish shift

 

Gold Performance:

Spot gold tumbled 2.19 per cent on Wednesday to close at $2,587 as the US Federal Reserve pressed hawkish pause button in its monetary policy decision on November 19.

 

The metal, at the time of writing this report, is trading at $2,593, up 0.29 per cent on the day. The MCX Gold February contract is at Rs 75,626, down 1.34 per cent on the day. 

 

Central Bank Watch:

As expected, the US Central Bank cut the Fed Fund rate by 25 bps to 4.25-4.50 per cent range and signalled a temporary pause in its rate cut spree as its economic dot plot shifted higher on new projections.

 

 

The FOMC sees core PCE inflation at 2.8 per cent, 2.5 per cent and 2.2 per cent in 2024, 2025 and 2026, respectively as compared to 2.6 per cent, 2.2 per cent and 2 per cent, respectively, seen in September projections. 

 

It revised 2024, 2025, and 2026 GDP growth rate are 2.5 per cent (previous forecast in September 2 per cent), 2.1 per cent (previous 2 per cent) and 2 per cent (previous 2 per cent), respectively, whereas the unemployment rate is projected to be 4.2 per cent, 4.3 per cent, and 4.3 per cent as compared to the previous forecasts of 4.4 per cent, 4.4 per cent and 4.3 per cent, respectively. Consequently, the Bank sees two rate cuts in 2025 and 2026 each as compared to 4 cuts in each of these years as forecasted in September.

 

Bank of Japan kept, as expected, kept the benchmark rate unchanged in its monetary policy meeting on November 19 as the BoJ Governor Ueda hinted at a later rate hike. Yen tumbled.

 

The Bank of England went for a dovish pause to keep the rate unchanged in its monetary policy decision taken on November 19. The Bank is expected to cut rates in 2025.

 

Overall, the central banks' decisions are positive for the US Dollar Index, thus bearish for the metal.

 

Data roundup:

The US data released on Thursday showed that the US GDP Q3 annualised was revised higher from 2.8 per cent to 3.1 per cent in the final reading as core PCE price index Q-o-Q at 2.2 per cent beat the forecast of 2.1 per cent. Both initial jobless claims and continuing claims dipped from the prior readings and were lower than their respective estimates.

 

US yields and the Dollar Index:

The US yields extended their rise on the US data. The ten-year yields surged past the key psychological resistance of 4.5 per cent and were at 4.58 per cent, up 1.8 per cent on the day, at the time of writing this report. Similarly, the US 2-year yields, at 4.36 per cent, reached the highest level since November 25, before retreating to 4.30 per cent. The US Dollar Index surged to 108.46 on November 19, more than a two-year high, in the wake of the hawkish FOMC and US GDP data.

 

Upcoming data:

Markets will closely monitor the US PCE deflator inflation data to be released today as it is the Fed's preferred gauge of inflation.

 

ETF:

Total known global gold ETF holdings stood at 82.69M as on November 18, around the lowest level since February as the holdings are down around 1.7% from the cycle peak of 84.14MOz seen on October 23.

 

Outlook:

The US Federal Reserve shifting its focus from employment to inflation control means fewer rate cuts in foreseeable future. The US economy continues to grow above-trend as the job market is still reasonably healthy. The US Dollar Index and the US yields are likely to rise further on the Fed's shift. In fact, talks of 5 per cent US 10-year yields are doing rounds. The US Dollar Index may test the crucial resistance around 110.50 in the coming days.

 

It is not the Fed's projections are cast in stone and are precise. The Fed is reacting to the set of the latest data like employment, inflation, and GDP growth. The Fed's stance and projections can change with the upcoming data. However, for now, going by these developments, the yellow metal is likely to be under pressure. In addition, ETF outflows are also weighing on it.  

 

Barring a flaring of geopolitical tensions, gold is likely to be under pressure unless a string of key US data show weakness. Bears eye $2537 (Rs 74,000), the cycle-low made on November 14. Resistance is at $2630 (Rs 76,700) /$2650 (Rs 77,200) /$2670 (Rs 77,900). Interim support is at $2581 (Rs 75,300)/$2550 (Rs 74,400).

 

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Disclaimer: This article is by Praveen Singh, associate VP, fundamental currencies and commodities at Mirae Asset Sharekhan. Views expressed are his own.